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Fitch Solutions cuts household spending growth forecast to 4.2% for 2020

30 Mar 2020 / 13:16 H.

PETALING JAYA: Fitch Solutions has revised down its household spending growth forecast for Malaysia in 2020 to a year-on-year (yoy) increase of 4.2%, from a pre-Covid 2020 projection of 6.3%, as consumers are restricted in their movements during the movement control order (MCO), and the majority of retail shops now closed.

“This revision for 2020 now places Malaysia’s consumer spending outlook on a slower trajectory than that of 2019, when a yoy growth of 5.6% was estimated,“ it said in a report.

Fitch said Malaysia’s retail and consumer facing sectors will be one of the hardest hit by Covid-19, as the government closes all non-essential businesses, borders and schools.

“We highlight that based on data releases and purchasing pattern observations of other countries with consumers in lockdown, spending patterns in Malaysia will shift to focusing on priority purchasing (food & non-alcoholic drinks and health-related products),“ added Fitch.

For the mass grocery retail sub segment, it said sales are expected to increase, from the effects of consumers stockpiling, as well as the fact that under MCO, restaurant dining will not be possible and therefore will be substituted by home-cooked food from supermarkets/wet markets.

“Malaysia has not been immune to the panic buying witnessed all over the world, as consumers stock up against fears of a protracted period of quarantine. Village Grocer, Tesco, Ben’s Independent Grocer, Pasaraya OTK have confirmed that they have registered record sales right before the MCO went into effect. Some supermarkets close to the land border with neighbouring Singapore also registered increased sales before MCO.”

For the restaurants and hotels sub segment, it said with restaurants ordered to be closed during the MCO, and the police and armed forces actively enforcing the ban, restaurants are set to lose at least one month’s revenue.

“We see that even prior to the MCO, consumers will have been seeking to decrease their likelihood of infection and so it is expected that the sector will also have seen decreased activity since Covid-19 was first confirmed in the country. However, there may be some respite for restaurants, as food delivery has been classified as an essential service, and many restaurants are now finding ways to deliver food to consumers.”

Similarly, with borders locked down, hotels will experience a sharp drop in their occupancy rates, with the Malaysian Association of Hotels projecting a revenue loss of RM560.7 million, and occupancy rates of just 11% for the entire duration of the MCO.

The Malaysia Retailers Association estimates that the retail sector will lose up to 90% of its revenue. Suria KLCC and Berjaya Times Square, the two largest malls in Kuala Lumpur, have been reported to be almost deserted, with most shops shuttered.

“Unlike restaurants, which have the ability to transition to food delivery relatively easily, we expect that it will be much harder for retailers to transition into e-commerce because both consumers and delivery providers like Grab and Shopee will be prioritising food and grocery deliveries — the exact scenario that we predicted and later saw play out in China,” said Fitch.

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